Residential real estate investing is an exciting and viable way to increase your income. In order to maximize the profit that you glean from an investment property, it is important to consider all of the different factors that will affect your property’s value. It is also a good idea to be realistic about your expectations and to know and understand what will decrease or increase your property’s monetary worth.
Start by looking at your investment residence objectively. Consider the positives and negatives of the property from a future tenant’s point of view. This will help you to avoid issues that may come up when you are ready to rent.
By remembering that you are preparing a property to rent to someone else, and by following the correct steps, you will have a better chance at ensuring that your rental property yields positive income.
In this post we’ll discuss how to prepare your investment property for tenants, increase its rental value, and reduce stress associated with managing a rental property.
1. Inspect Your Rental Property
Hire a professional (such as a contractor) to examine the property and ensure there are no structural, electrical, or major repairs that need to be done.
Have the furnace, hot water tank, and plumbing inspected for damage or age. If anything is performing poorly, reaching its expiration date, or showing significant wear, replace or repair it. It may seem like a large expense now, but it can save you from having a major issue while the residence is occupied. Avoid future complications by making repairs before they are required, and save yourself some money by looking at some of our DIY tips.
Also, fix any small but obvious problems like bent or broken window dressings, doors that don’t close properly, and scratched or broken trim.
2. Increase Your Rental Property’s Appeal
If your rental property looks outdated and unappealing, you should consider updating it. A fresh coat of paint, some new flooring, and some simple landscaping can improve the appearance of your investment property dramatically.
If the house needs more than just a little TLC, weigh the cost of the renovations against the highest rent that you could charge if the renovations were made. You don’t want to end up putting more cash into the house than it’s worth, but you also don’t want to miss out on income from the property because of something that could be easily changed or fixed.
Depending on the time of year, do a bit of landscaping. Seed the lawn if needed, plant a few flowers, trim the trees, and clear away any debris left over from previous seasons.
Interior colors should be clean and neutral. Your tastes may differ from those of your future tenants so be sure to consider that when shopping for supplies. It will be easier for your tenant to match their possessions and furnishings to the home if the colors are warm, inviting, and calm.
3. Price Your Rental Property Competitively
The amount that you decide to charge for rent can and should be influenced by a number of factors. The area that the property is located in, the condition of the home, the mortgage payments, the forecasted utility rates, and the amenities located nearby may cause your asking price to fluctuate.
You can potentially reduce your asking price if your property is located in a lower-income area with little rental demand. Asking too much might lead you into months of waiting for a tenant who is willing to pay what you are hoping for. Look into other rental properties in your area to determine the going rate for your neighborhood.
If the home is structurally stable but dated, you’ll need to consider what that equates to in terms of value. Old flooring, vibrant paint and/or wallpaper, and shabby interiors will affect your price goal negatively. Invest in a few small renovations to update the appearance and reap the rewards for years to come.
You need to make sure that the amount that you are asking for covers the overhead for the property. Decide on the cost of utilities, pet fees, damage deposit, and so on, and protect yourself by having everything set out clearly in a rental agreement. Price the home so that it can basically run on its own while you sit back and collect the rent checks.
Some landlords offer a monthly fee for utility rates and others ask tenants to cover their own utility costs. Figure out what you want and don’t want to include and factor that into the cost of rent.
Living in a lively and desirable part of town will be a selling point to potential tenants. Parents with children will likely prefer a house with a school nearby. Students and young people will flock to investment properties that are near bus routes and event locations. Find your selling points and use them to your advantage by targeting the people who might enjoy what your home can offer.
4. Know Your Preferences
It’s important that you think about who you want your future tenant to be and who would be best suited for your home.
A family will generally have a larger budget than a single student, but they will also use more utilities and cause more wear and tear in the house.
Figure out whether you are going to allow the following in your rental property:
- Small Updates (paint colors)
Know and understand who your potential tenant is, and who would fit best in your rental property. Decide on a rental term (6 months, 12 months, etc.) so that you can avoid unnecessary questions. Don’t forget to think about things like if you will allow subleasing or not, and what (if any) outbuildings are included.
Explain everything clearly in your ads so that you aren’t wasting your own time or the time of others. If you don’t specify your preferences, don’t be surprised if you have to keep answering emails about pet allowances and whether your property is smoking or non-smoking.
5. Use a Rental Agreement
A lease agreement between you and your tenant is extremely important. It will provide you both with security and peace of mind. It can also keep you both from losing money and from being treated poorly. A lease will outline the monthly rental fee, the due dates and penalties for payments, and much more. It can save you all a lot of time and money if any issues should arise. Creating it will probably bring up at least a few things that you hadn’t thought of.
Prepare a rental agreement prior to listing your property so that you can answer any questions your potential tenants might have.
6. Find the Perfect Tenant
You have a variety of options when trying to connect with a tenant who is looking for a property just like yours.
If you are budget-conscious:
Start by asking friends and family and placing a free ad online. Screen for tenants who meet your criteria until you feel like you are ready to sign the lease.
If you are posting ads online, be sure to include pictures. The home should be clean, free of clutter, and any renovations should be complete. Taking clear, flattering pictures will show people exactly what to expect if they decide to view your home. Anyone coming to the property for a viewing shouldn’t be surprised.
If you have a little money to spend:
Invest in newspaper, online, and other types of ads. Think about where your potential tenant would likely read your ad and go from there.
If you don’t want to do the work:
If you have multiple investment properties, or if you aren’t available to find a tenant and manage the property, look into enlisting a property manager. They will take care of the details while you take care of your priorities.
7. Enjoy Your Investment Property
Now that you have gone through all of the steps to ensure that you and your tenant will have a positive experience together, it’s time for you to sit back and enjoy your investment.
Keep in mind that there may be some bumps along the road, but that you can always be prepared for them. Take a look at this infographic to see what types of forms and notices may be useful to you as a landlord, and which ones you may receive from your tenants.